A Closer Look at Taiwan Semiconductor: The New Trillion-Dollar AI Chip Stock

Taiwan Semiconductor has recently joined the prestigious trillion-dollar club, having seen its stock price increase by an impressive 90% in 2024. This surge now places the company's market capitalization above $1 trillion, up from around $500 billion just a year ago.

As of now, there are only 10 publicly traded companies worldwide that have achieved a market valuation exceeding $1 trillion. Among those newer to this exclusive group is Taiwan Semiconductor Manufacturing (TSM).

Analyzing TSMC's Financial Performance

A closer examination of TSMC's recent financial results reveals significant annual growth figures for both revenue and profit over the last few quarters:

Metric	Q1 2024	Q2 2024	Q3 2024	Q4 2024
Revenue growth (YOY)	16.5%	40.1%	39.0%	38.8%
Earnings per share growth (YOY)	8.9%	36.3%	54.2%	57.0%

Data source: Taiwan Semiconductor. YOY = year over year.

Over the past year, TSMC has demonstrated a remarkable acceleration in its revenue growth. More importantly, the company's gross margin is expanding, which is contributing to strong earnings growth. Given these positive financial indicators, it's no surprise that TSMC shares have been on a dramatic rise.

Additionally, trends within the technology sector signal a bright future for TSMC. Major tech companies, including Microsoft, Alphabet, Amazon, and Oracle, are projected to invest billions in artificial intelligence (AI) infrastructure in the coming years. This investment will likely require TSMC's advanced manufacturing capabilities.

The revenue and earnings growth forecasts for TSMC demonstrate that it is well-positioned to capture a significant share of the increasing spending on AI technology and infrastructure, especially as new data centers and associated chip technology become more prevalent.

Why TSMC Stock Still Represents a Good Investment Opportunity

There may be hesitation among investors who feel they have missed out on the opportunity to invest in TSMC, given its recent stock performance. A 90% increase is substantial, and a market capitalization in the trillion-dollar range can lead to perceptions that the stock may not have much further to climb.

Currently trading at approximately $223, which is close to its all-time high, some might assume that TSMC is overvalued. Yet, despite this high share price, the company's projected price-to-earnings (P/E) ratio is just 25. This is noteworthy, as it compares favorably against the average forward P/E ratio of the S&P 500, which stands at 24.

TSMC presents a unique case where a large company is not only increasing its revenue but also seeing its earnings growth outstrip its sales growth. This dynamic suggests that TSMC's valuation may actually be reasonable when viewed through the lens of earnings potential.

The valuation boost for TSMC is likely justified and represents a normalization phase after the company was previously undervalued compared to its peers in the semiconductor industry. Given the robust momentum within the AI space, it is reasonable to expect TSMC to continue benefiting over the coming years, enjoying sustained revenue and earnings growth. Thus, now may be an excellent time for investors to consider adding this growth stock to their portfolios.

Note: This article does not constitute financial advice. It's advisable to conduct further research or consult with a financial advisor before making investment decisions.

TSMC, Stocks, AI